During the opening remarks at the Securities Regulation Institute in Washington DC, the SEC Chairman Jay Clayton discussed the expectations for market professionals when dealing with new products or new forms of old products, specifically in the Initial Coin Offering (ICO) space. He also talked about the SEC approach to the remaining Dodd-Frank rulemaking mandates.
The SEC Chairman said: "Market professionals, especially gatekeepers, need to act responsibly and hold themselves to high standards. To be blunt, from what I have seen recently, particularly in the initial coin offering (ICO) space, they can do better." He mentioned that he has, "... instructed the SEC staff to be on high alert for approaches to ICOs that may be contrary to the spirit of our securities laws and the professional obligations of the U.S. securities bar. " He also raised a legal issue in the area of distributed ledger or "blockchain" space: "I doubt anyone in this audience thinks it would be acceptable for a public company with no meaningful track record in pursuing the commercialization of distributed ledger or blockchain technology to (1) start to dabble in blockchain activities, (2) change its name to something like "Blockchain-R-Us," and (3) immediately offer securities, without providing adequate disclosure to Main Street investors about those changes and the risks involved. The SEC is looking closely at the disclosures of public companies that shift their business models to capitalize on the perceived promise of distributed ledger technology and whether the disclosures comply with the securities laws, particularly in the case of an offering."
Next, he explained the approach for proceeding with the remaining Dodd-Frank rules, which, according to him, mostly fall into four categories:
- The remaining rules to stand-up the security-based swap regime. SEC is seeking to harmonize the securities-based swap rules with the CFTC, where appropriate, to increase effectiveness as well as reduce complexity and costs.
- Executive compensation rules for both public companies and SEC-regulated entities. SEC recently issued interpretive guidance to help companies comply with the new pay ratio rules. This guidance was intended to help companies reduce compliance costs.
- Specialized disclosure rules, such as resource extraction disclosure. Keeping in mind the challenges in the form of strong and divergent views on how these rules should be approached, he has asked the SEC staff to "craft rules for consideration by the Commission that meet the objectives of Congress" while considering the existing array of procedural and substantive constraints.
- Mandates for which market developments—including developments resulting from shareholder engagement—mitigated some concerns that motivated the statutory requirements. For example, several companies already have made public their policies regarding compensation clawbacks. Some of these policies go beyond what would be required under Dodd-Frank. A few companies have been observed attempting to claw back compensation from their executives under these policies. SEC rulemaking priorities, as well as the rules themselves, should reflect these observable developments.
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